10 Tips for Setting a Budget you can Stick To
How to Reach you Financial Goals Quicker
Most of us know that having a budget is the best way to take control of our finances, and yet less than half of Canadians actually follow one.
There could be a variety of reasons for this: budgeting can be tedious, some people hate to even think about their finances, while others find budgets hard to maintain.
These 10 tips can help you to set up a budget easily and, most importantly, stick to it.
It’s essential to decide on your financial priorities if you’re going to stick to any budget. Just saying you want to spend less or cut back on your spending is too vague to stick to successfully. Here are some examples of specific goals you might want to achieve with your budget:
- Reduce your spending by 25%
- Put $300 per month into savings
- Get rid of your debt within four years
- Grow your kids’ education fund
- Save $20,000 in three years for a down payment on a new home
2. Be realistic
Don’t set overly-ambitious targets. You need to set yourself up for success if this is going to work, so make sure there is some wiggle room between your income and overall outgoings, and only set goals that are realistic.
3. Work out your exact income
Most budgets work on a monthly basis, so work out how much you’re paid, after tax, per month, so you have a solid starting point for your budget. If you’re paid every two weeks, multiply your take-home pay by 26 and then divide it by 12 to calculate your monthly income.
4. Track where your money is going
Work out exactly how your income is spent every month. Look back over the last three months and track what was spent on essentials and discretionary costs. Cornerstone’s cash flow calculator makes this really easy.
5. Work out what is essential and what isn’t
Essentials are things you absolutely need, such as your mortgage or rent, utilities, food and insurance.
Non-essentials are things you could go without. These could include take-out coffees, dining out, trips, alcohol and event tickets. This exercise will help you to find where you can free up some money that can then go towards savings goals or paying down debt.
6. Look at ways to reduce costs
Go through your expenses one by one and see if there are any ways to reduce them. Do your research on alternative utility providers, negotiate a better cell phone plan or shop at a cheaper grocery store. If you question every expense, you’ll free up more money for your goals.
7. Design a budget plan that suits your lifestyle
You know yourself better than anyone else, so ask yourself some honest questions. Is it realistic to restrict yourself to going out only once a month? Or is twice a month more manageable? Can you really go through a whole year without a vacation?
Restricting your fun expenses too much can lead to failure, so by all means limit them as much as you’re comfortable with, just don’t overdo it.
8. Start an emergency savings account
If you don’t have any emergency savings, now is the time to build them up. Without them, even the most robust budget can be derailed.
A typical goal is between three-to-six months of essential expenses. That way, if your car breaks down, the furnace dies, or you need a root canal, you can pay for it without going into debt or dipping into your savings.
9. Be flexible
If your budget’s too rigid, you could feel like it’s holding you prisoner rather than setting you free from financial worries. If your savings commitments are so high that you don’t have any fun, rein them in a little. Conversely, if you get a pay rise, increase one of your savings goals.
10. Prepare for the unexpected
No matter how well you plan your budget, some random expenses will crop up that you hadn’t planned for in your monthly budget. It might be a new winter coat, a birthday gift or a school trip. If you allocate $50 - 100 per month for these costs, the rest of your budget will remain on track.